Hawkish comments from Federal Reserve and European Central Bank officials and a robust UK inflation suggest more rate hikes could be on the cards, keeping a lid on stock markets on Wednesday.
Blue-chip equities in Europe had a decent afternoon on Wednesday, helping large-cap benchmarks in Paris and Frankfurt end in the green. Share price declines for miners weighed on the FTSE 100, however.
The FTSE 100 index closed down 10.67 points, 0.1%, at 7,898.77. The FTSE 250 lost 95.47 points, 0.5%, at 19,200.85, and the AIM All-Share ended down 3.22 points, 0.4%, at 829.22.
The Cboe UK 100 closed down 0.1% at 790.29, the Cboe UK 250 lost 0.6% to 16,803.71, and the Cboe Small Companies edged down 0.1% to 13,221.22.
The CAC 40 index in Paris rose 0.2%, while the DAX 40 in Frankfurt crept up 0.1%.
‘Stubbornly high inflation soured the mood on Wednesday, with the FTSE 100 dipping back after a strong run since late March. News that UK CPI remains in double-digits will only strengthen the argument for the Bank of England to keep pushing up interest rates,’ AJ Bell analyst Russ Mould commented.
The Bank of England next decides on interest rates about a week later, on May 11. Threadneedle Street was in focus again after a reading showed UK inflation is proving stickier than expected.
While the rate of yearly inflation tamed to 10.1% last month from 10.4% in February, it was above FXStreet-cited market consensus of 10%.
Over in the eurozone, inflation remains robust but comfortably below the 10% mark. The annual harmonised inflation rate across the single currency was confirmed to have cooled to 6.9% in March from 8.5% in February.
More eurozone interest rate increases will be appropriate to tame high inflation if conditions remain as expected, the European Central Bank’s chief economist said.
The central bank holds its next meeting on May 4 and, with inflation in the 20-nation currency club slowing, all eyes are on whether policymakers will implement another hike, and by how much.
Chief Economist Philip Lane said that ‘it will be appropriate to raise rates further’ if the ‘baseline scenario’ underlying the ECB’s most recent forecasts in March holds.
The Fed may also continue hiking. On Tuesday, St Louis Federal Reserve President James Bullard said more interest rate hikes may be necessary to tame inflation.
Bullard’s speech echoed Fed Governor Christopher Waller, who said on Friday further tightening was needed. Recently, Atlanta Fed President Raphael Bostic also endorsed a 25 basis point hike early next month. The Fed will begin its next policy-setting meeting on May 2, with a decision and press conference from Chair Jerome Powell a day later.
Sterling was quoted at $1.2439 late Wednesday afternoon, firm on $1.2424 at the London equities close on Tuesday. The euro bought $1.0958, down from $1.0964. Against the yen, the dollar was trading at JP¥134.69, up versus JP¥133.96.
In London, mining stocks weighed on the FTSE 100. Shares in the likes of Anglo American, Rio Tinto, and Glencore enjoyed a good start to the week, supported better-than-expected China data. They struggled on Wednesday, however.
Anglo American fell 1.6%, Rio Tinto lost 1.4% and Glencore shed 0.7%.
Glencore hinted that it would be willing to improve its offer for stubborn takeover target Teck Resources.
The Anglo-Swiss miner and commodities trader published an open letter to Teck shareholders, urging them to take action to support engagement on its proposal.
‘Glencore is prepared to meet anytime and anywhere that is suitable for the Teck board and/or its management team to explore our proposal,’ the letter said.
Teck denied that it has refused to engage but maintained that the Glencore offer is ‘not a realistic or viable’ option.
British American Tobacco rose 3.7%. It expects to see annual organic revenue growth on a constant currency basis, while anticipating its performance to be second-half weighted.
The London-based maker of Dunhill, Kent and Lucky Strike cigarettes said it expects revenue growth of between 3% and 5% in 2023, excluding Russia and Belarus, alongside earnings per share growth of a mid-single digits percentage on a constant currency adjusted diluted earnings per share basis.
It reiterated its February guidance of expecting performance to be weighted towards the second half of 2023 on an organic basis, due to the macroeconomic outlook.
BAT said its non-combustible consumer base increased further in the year-to-date, by more than 700,000 consumers, and that it is making ‘strong progress’ towards its 2024 ‘new category’ profitability target.
It set a new category revenue target of £5 billion in 2025, after reaching profitability a year early in 2024.
Liontrust Asset Management declined 6.8%, among the worst FTSE 250 performers. It expects annual profit to top market expectations, but cautioned on a tricky year of ‘net outflows and mixed performance for our funds’.
The London-based asset manager anticipates its adjusted pretax profit for the year ended March 31 to be £86 million, compared to £96.6 million the year prior. The figure will be ‘ahead of market expectations’.
However, it said assets under management and advice fell 6.3% to £31.43 billion from £33.55 billion a year earlier. It suffered net outflows of £4.84 billion during the financial year, and £2.02 during the fourth financial quarter alone.
Gold was quoted at $1,993.72 an ounce late Wednesday afternoon in London, down from $2,010.02 late on Tuesday. Brent oil was trading at $83.68 a barrel, down from $84.56 late Tuesday afternoon.
Stocks in New York were lower at the time of the London equities close. The Dow Jones Industrial Average and Nasdaq Composite were down 0.3%, while the S&P 500 lost 0.2%.
Morgan Stanley shares fell 0.5%. It reported a first-quarter earnings fall as its key investment banking unit struggled.
Revenue in the first three months of 2023 declined 1.9% to $14.52 billion from $14.80 billion a year earlier. Net income declined 18% on-year to $3.03 billion from $3.72 billion.
Chair and Chief Executive James Gorman said it was a ‘strong’ outturn in a ‘very unusual environment’.
‘The investments we have made in our Wealth Management business continue to bear fruit as we added a robust $110 billion in net new assets this quarter. Equity and Fixed Income revenues were strong, although Investment Banking activity continued to be constrained,’ Gorman added.
In its Institutional Securities arm, which provides services such as investment banking, sales and trading, revenue declined 11% to $6.80 billion from $7.66 billion a year earlier.
Investment banking revenue alone plunged 24% on less deal-making. Fewer mergers and acquisitions transactions were completed and there were also less initial public offering volumes, Morgan Stanley explained.
After the closing bell in New York on Wednesday, electric carmaker Tesla and computing company IBM report.
Telecommunications firm AT&T and railroad firm Union Pacific report first-quarter results on Thursday.
Thursday’s UK corporate diary has trading statements from takeaway delivery company Deliveroo and estate agent Foxtons. Home furnishings retailer Dunelm reports third-quarter results.
The economic calendar has a eurozone consumer confidence reading at 1500 BST, after the latest US jobless claims data at 1330 BST.
By Eric Cunha, Alliance News news editor
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